MEMORANDUM

TO: Kim Leinbach, City Manager

FROM: Lee Huffstutler, Finance Director

SUBJECT: General Obligation Bond Referendum Ordinance

At the April 5, 2005 meeting, City Council authorized a general obligation bond referendum for August 2, 2005. The attached ordinance authorizes the issuance of general obligation bonds, backed by a one mill levy, to be used for land, parks, greenways, roads, highways, and related infrastructure described in the redevelopment plan, and calls for the referendum on August 2, 2005.

In preparing the ordinance, several issues were broached, as follows:

Legislative Process. In order to move the referendum forward, the City Council must take action (either by ordinance or resolution) to outline and authorize the scope of the general obligation bond referendum. State Statute 100.211 provides that Council shall take action in the form of a resolution (which is less restrictive than an ordinance) to order the referendum, however, City staff suggests using the ordinance process in order to give ample exposure and opportunity for review. In either case, the legislative language is largely the same. Here is the legislative schedule, which would include proper public notice for the meetings:

I have asked the City’s bond counsel to attend these meetings to address any questions City Council may have concerning the ordinance and referendum process.

Long-term Financing with TIF or other Revenues. It is City staff’s expectation and recommendation that as TIF or other revenues become available as the downtown project grows, that these revenues be used to supplant (or reduce) the general obligation bond assessment required to make debt service payments on any general obligation bonds issued. Some have suggested that this pledge be formalized in the ordinance currently under consideration. Discussions with the City’s bond attorneys and financial advisor leave no room that this ordinance is not the appropriate place to include such a pledge. It would be better to include such a pledge in the authorizing bond resolution subsequently brought to City Council for review and adoption when bonds are scheduled to be issued.

I have asked the City’s financial advisor to attend the Council’s meetings to address any questions concerning general obligation bonds and the City’s long-term financing plan.

The Ballot Language. One crucial component of the process is asking on the referendum ballot the question whether bonds shall be issued. City staff reviewed a number of ballot samples and, along with the City’s bond attorneys and financial advisor, prepared the ballot included in the ordinance. City staff considers the downtown project, as conceived and reflected in the Torti Gallas’ plan, as a single project, and have included just a single question on the ballot.

Financing the Project. As illustrated in the Torti Gallas/Lesser financial summary, the City’s portion of the downtown project is $60 million, for land acquisition, site development (including demolition/ clearing, road construction, streetscape, parks/plazas, retention ponds), public parking garages, buildings (including arts center, city hall), and external road improvements (i.e., 56th street). The question becomes how to finance the City’s share, given that the general obligation bond only covers a portion (i.e., $17.7 million), of the financing needs.

City staff identified a number of financing sources, and each day the opportunities for additional financing sources increases. It’s difficult to say, however, without consulting with the development partner, exactly how each component should or will be financed. For example, should general obligation bonds be used to finance a prorata share of each component of the project, or should the general obligation bonds be narrowly applied only to the earliest portions of the project. City staff is tentatively proposing the following financing scenario, the scope of which is reflected in the ballot language:

Under this financing scenario, with the general obligation bonds the City can fulfill all or most of its obligation towards readying the project for developer construction, i.e., all of the City’s land component is purchased and cleared, half of the streets are constructed, the park component is covered, and a third of the parking garages are built. After phases one or two are complete, TIF revenues will begin to increase and will be used to support the financing of the City Hall and Arts Education Center.

Exit Strategy. The question arises, what will the City do should the bond referendum fail or be indefinitely postponed. From the beginning City staff has considered this potentiality. As I mentioned in an earlier presentation to City Council, a failed referendum would be a significant blow to the redevelopment project, as the City has no other revenue stream to dedicate wholly to this project. However, since downtown tenant rent revenue is generating approximately $500,000 (net) per year, CIT is generating approximately $1 million per year, and gas taxes are generating approximately $1 million per year, these sources (at the cost of curtailing all current uses of the funds) could be diverted to the downtown project to keep it moving forward.